Emergency Budget: George Osborne delivers austerity package
By Matthew West
Chancellor of the exchequer, George Osborne has announced his first Budget with a package of measures designed to tackle the deficit. Calling the budget a package from "a progressive alliance."
He said the Budget would "deal decisively with the deficit", would "reward work" and "protect the most vulnerable in our society".
"This Budget is needed to deal with our country's debts....this is the unavoidable Budget," he said.
The chancellor added he would not hide decisions he had taken saying the public would hear each decision from him at the dispatch box.
"When we say we're all in this together we mean it," he said.
The chancellor said Labour's two golden rules had utterly failed adding that this would be the last time the government would adhere to them saying we are going to fail to meet the two golden rules by £485 billion.
Announcing a new fiscal mandate, the chancellor said the stuctural budget deficit should be "in balance" by 2015. The mandate would be supplemented by a rule that debt should be falling as a proportion of GDP by 2015/16 he said, adding the government was on target to meet this target a year earlier, by 2014.
The government would achieve this through lower spending rather than higher taxes, the chancellor added.
The chancellor said public borrowing would be £149 billion this year, £116 billion in 2011/12 £89 billion in 2012/13, £60 billion in 2013/14, £37 billion in 2014/15 and £20 billion in 2015/16.
Mr Osborne also announced the country would not be joining the euro in this parliament adding that he had abolished the Treasury's euro preparation unit. "Yes, one does exist," he added, "It will now engage in more worthwhile activities".
Mr Osborne confirmed the auction of the Channel Tunnel Rail Link, the sale of the Tote betting company and of Air Traffic Control.
The chancellor added the Civil List - through which the Royal Family is supported - would remain unchanged this year but added that it would be scutinized by the Audit Office in future.
Public sector pay is to be frozen for two years, the chancellor said, but 1.7 million public sector workers who earn less than £21,000 each year would received a flat pay rise of £250 for both years.
"It is simply not possible to deal with a budget deficit on this scale without wholesale reform of the welfare system," the chancellor said arguing that welfare spending had increased by 45% in the last ten years adding that such spending had contributed to the current budget deficit.
Welfare payments and pensions would be linked to the Consumer Price Index (CPI) in the future rather than the Retail Price Index(RPI), Mr Osborne said.
Health in pregnancy grant is to be abolished in April 2011, the savings gateway will not be extended and cild benefit will be frozen for the next three years, the chancellor said, rather than taxing the benefit or means testing it. Tax credits would also be restricted for families with incomes above £40,000, the chancellor said.
The government would not seek to reduce disability benefit but would introduce a medical test from 2013 the chancellor said.
Mr Osborne said the cost of housing benefit had gotten out of control meaning the government was now spending more on housing benefit than on police and universities. Maximum limits would be introduced to housing benefit in order to "improve incentives to work".
In a move that was widely anticipated the chancellor announced the threshold for National Insurance would be increased by £21 per week for employers. Meanwhile, he added that corporation tax would be decreased by one per cent per year from April 2011 for four years reducing the tax from 28% to 24%. Small comapnies corporation tax would also be cut to 20% in April 2011.
In another move which had been widely expected the chancellor announced a bank levy from Januray 2011 which he expected to provide revenues of around £2 billion a year. He also announced the government's of France and Germany would also be introducing bank levies of their own.
The chancellor announced the abolition of the previous government's landline duty to help fund the increase of broadband services to the whole of the country claiming it was poorly targeted and that money saved from the digital switchover in television would go to provide funding for broadband.
Mr Osborne said that he was someone who "believes in lower taxation" but said higher taxes were necessary to balance the budget and "the years of spending had made this unavoidable" the result was that VAT would be increased from 17.5% to 20% in January 2011 a decision which was met with howls of derision from the opposition benches.
The duty on cider would be reduced 10% reversing the previous governments tax increase.
The government would also commit to helping local councils in England to freeze council tax should those councils be able to manage their services efficiently, the chancellor said.
Mr Osborne announced an increase in Capital Gains Tax for higher rate tax payers to 28% from midnight tonight. But he said those on lower and middle incomes would continue to pay CGT at 18%.
"A responsible society is one that rewards those who choose to work," Mr Osborne said as he introduced his announcements on Income Tax. The chancellor announced a £1000 increase in Income Tax from £6475 to £7475 taking over 800,000 people out of Income Tax altogether, he said. He added the government's long term aim was to increase the Income Tax threshold to £10,000 over the lifetime of the current parliament. Higher rate taxpayers would see no change to their rate of tax until at least 2013, he said.
The government would also re-establish the link between the basic state pension and earnings the chancellor said, there would be "no 75 pence increases in the state pension", he said.
Mr Osborne also added the child element of the child tax credit would be increased by £150 above inflation next year.
This is a progressive budget the chancellor said, claiming the budget would see the burden for clearing the budget deficit would be equally shared. "Prosperity for all, that is our goal," he said.
Deputy Labour leader Harriet Harman accused the Chancellor of reducing the prospects for economic growth and increasing the chances of unemployment. Tens of thousands of people would lose their jobs Ms Harman said.
"Private sectors jobs would not spotaneously emerge as public sector jobs are cut," she said.
"This reckless budget's short sighted approach will risk the recover and make matters worse.
"They've scrapped the future jobs fund before it's even been evaluated. It's unfair on families,the proposals [include] cuts to the disability living allowance, ending free swimming, cutting back on free school meals. The chancellor tells us the proposals are fair, that the rich will pay the most.....but VAT rises hurt the poor," she added.
"The area most effected by his austerity package is Merseyside, the area least affected by his proposals will be Cheshire near to his own constituency," the deputy Labour leader said.
"This is a budget based on rewritten history and excuses. This budget is not driven by economics but by their ideology. This austerity budget is their choice and it's the wrong choice," she continued.
Turning her attention to the Liberal Democrats Ms Harman said: "Twenty-two ministerial jobs have been bought at the cost of thousands of others." Turning her fire on business secretary Vince Cable, she said: "He has gone from natioanl treasure to Treasury poodle in a matter of weeks."
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- the budget and pre budget
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